A Quiet Confession from the BIS
Oh, you didn't read this speech? How interesting... how bizarre...
Dear Fellow Traveler,
On January 28, 2026, the General Manager of the Bank for International Settlements (BIS) received an honorary doctorate in Madrid.
Nobody covered the speech he gave.
We’ve seen nothing in Bloomberg or the Financial Times.
That’s telling because what the man said wasn’t good for confidence.
Pablo Hernandez de Cos already runs the central bank of central banks in the BIS.
He’s also one of the favorites to soon run the dumpster fire that is the European Central Bank.
He used his speech to admit that central banking is operating beyond the edge of its own maps.
He used a nautical metaphor to explain, because who doesn’t own their own yacht in this era of never-ending monetary expansion?
For him, a clear mandate is the anchor. Central bank independence would be the hull.
And accountability is the mast.
But the ship also needs “sails, a rudder, a compass, and maps.”
Central bankers reach for metaphors when precision fails them, and if accountability is the mast, then that explains why we’ve been drifting at sea since 2008.
He listed the forces battering the vessel… deglobalization, aging populations, technological change, and “high and rising public debt.”
These forces are increasing uncertainty about “some of the basic variables for effective monetary policy formulation.”
He basically admits that the policy rate… the one number the entire financial system is built around… is a guess.
And they’re telling us the margin of error just got wider.
What Is Reality?
Then came the word that matters most in the entire speech.
Realism.
It wasn’t hallmark words of central banks like “confidence” or “forward guidance.”
It wasn’t that “we have the tools” to prevent a crisis. He said, “Realism.”
Which is what institutions call it when they’re lowering the bar so failure looks intentional.
Central banks should “focus on what they can foresee and deliver.”
He said “forecast errors” will be high. So, don’t bother doing that work, I guess.
Instead, central banks should only pursue objectives “for which it is well equipped to achieve.” Anything beyond that “would increase reputational risks and undermine their credibility and independence.”
That’s the head of the BIS telling his own profession to narrow the mission before someone narrows it for them.
The Balance Sheet Confession
Then he turned to the balance sheets.
He said the design of asset purchases must “facilitate a rapid reduction once the reasons for their implementation have disappeared, to minimise concerns about financial stability and unwanted side effects.”
The balance sheets of every major central bank is still bloated, as evidenced by the chart tracking their assets at the end of the third quarter of 2025. [Note: The chart accurately shows balance-sheet totals, but it mixes national central banks with the consolidated Euro Area.]
Now, he’s admitting that central bank balance sheets were not designed for a clean exit.
That the unwinding creates financial instability.
The Fed went from $900 billion to $8.9 trillion and is now trying to shrink while the government issues record debt.
The money printer was easy to turn on.
But turning it off is the part nobody really planned for.
Same Song, Different Podium
Then came the same complaint of people who don’t have the bravery to do their jobs.
“We must also be aware of the limitations of what monetary policy can achieve on its own,” he said.
He’s saying that central banks were forced into this role because politicians refused to do theirs. And he’s saying… we can’t carry that weight anymore.
This is the same confession former Fed Chair Arthur Burns made in Belgrade, Yugoslavia, in 1979. The world ignored Burns, and what followed was 13% inflation and the most painful rate-hiking cycle in American history.
Burns called it “the anguish of central banking.”
Hernandez de Cos, 47 years later, is calling it “realism.”
It’s a different timeframe, but it’s the same surrender.
The money printer operators are telling you, in the most diplomatic language possible, that the machine is less reliable than advertised, the maps are outdated, and they can’t do this alone.
When the people who run the system start managing expectations downward… what usually follows is policy failure or regime change.
But probably both.
Buy the chokepoints of the economy…
Stop speculating on profitless junk.
And stay positive,
Garrett Baldwin
Thank you, Mr. Baldwin. I appreciate your time and effort in writing these posts. As for me, in my own words that I have repeated more and more often in the past twenty years, the quality of service has deteriorated in every field. I won't give my age online, but I have been around since just about mid last century. I am struck by the truth that error was once the exception. Now it is the Rule. People used to make things to last. Orders were completed correctly. Failure was maybe 2 %. Today, no matter what, I expect to have to correct or return or trash 80% of any purchase. That applies to fast food, medical care, politicians, finances, advisors, etc. In every aspect of life, I anticipate failure to Rule. So, two of my biggest concerns is Government and Healthcare incompetence. Why? Because no one is responsible. No one is held to account when they fail. And I do not see future Generations stepping up. In fact, recent accounting says 20 % of college students already claim to have disabilities. I'm afraid we're screwed.
But keep the posts coming.
Thanks.